Stablecoins dominated the financial discourse in 2025. But is their tale one of sound and fury, as Macbeth might have it, which – after their hour of strutting and fretting – signifies nothing? Traditional finance, aided by regulators and central banks outside the US and sheer heft within it, is moving to beat them, or at least co-opt them.
The UK’s approach
UK digital finance regulation has been a messy but instructive journey. The Bank of England was an early pioneer in ‘synchronisation’ with distributed ledger technology market participants but resisted the notion of stablecoins for systemic use, citing the risk that they could damage the ‘singleness of money’. Notwithstanding its validity, US policy rendered that approach moot.
The Bank subsequently suggested that stablecoins would be 100% backed by unremunerated central bank reserves, giving them a state halo but making them unviable businesses. This has since been watered down to 40%, with the rest in government money market instruments. The Bank believes this is enough for the operators to turn a profit.
Some market participants and MPs are still grumbling about it, though, as well as the proposed holding limits. The Bank describes those as a ‘risk-minded design feature’ for now, rather than a principle. Meanwhile, Ulrich Bindseil and others have suggested a middle path on reserves, where the stablecoin issuer and the central bank split the seigniorage via a differential rate to banks rather than a zero one.
An end station seems visible where stablecoins benefit from central bank involvement, but not too much. They could present themselves to market as a resilient version of money backed by the state, with access to repurchase facilities and the lender of last resort window at the Bank, but would not profit unduly from reserves held there, which commercial banks are allowed to do in return for creating money in the broader economy.
In short, stablecoins would simply become regulated e-money platforms, perhaps snapping at the heels of banks and existing payment service providers enough to apply competitive pressure, but not materially changing the structure of how money currently works. On the retail side, the coins would arguably represent synthetic central bank digital currencies, saving the Bank the hassle of a retail-facing public IT project, and sparing the private sector a state payments competitor crowding out innovation.
There hasn’t yet been a rush to set up sterling-backed stablecoins.
Europe is focusing on CBDC
The European Central Bank, meanwhile, has stepped up its wholesale CBDC streams under the Pontes project, which will go live in the second half of 2026 and provide commercial banks with a means to settle tokenised assets in public money. A consortium of European banks is also preparing a stablecoin under the Markets in Crypto-Assets framework, while policy-makers try to hold back the US ‘oligopoly’.
If banks get their acts together on tokenised deposits, they will be able to outgun stablecoins as versions of money either for domestic payments or interaction with digital assets quite easily – simply by virtue of paying interest, while also having deposit guarantees and state backing.
Snags remain: stablecoins may find a way around their yield-paying ban, de facto or eventually de jure. Bank deposit tokens are not yet fungible with one another, though clearers are emerging, and banks have a habit of co-operating on market innovation when they have to. For now, policy-makers will have to cast a veil over what will happen if negative rates return, which would, perhaps dangerously, flip the advantage back to non-interest-bearing stablecoins or indeed CBDCs. And banks may still be outgunned on cross-border payments, where they say compliance regulatory complexity puts them at a disadvantage.
Interesting examples of mutually beneficial co-habitation between banks and stablecoins are also emerging. Regulators worry about the fluctuating exchange-based value of stablecoins, where even small de-pegs would make them unusable for institutional transactions: the tokens should be immediately redeemable at par. This is impracticable, since it would require the issuer at any time to rapidly onboard and process any redeeming holder of what is essentially a bearer instrument.
At OMFIF meetings, some are suggesting that banks could directly convert stablecoins into deposits for their customers and reconcile the redemptions in the background with the coin issuer at set intervals. A seamless conversion between unremunerated stablecoins and commercial bank money might also help to alleviate policy-makers’ – and bankers’ – fears of deposit flight.
The US is shutting the Fed out
What of the US, where the Federal Reserve has been banned from issuing a CBDC and held at arm’s length from the stablecoin party, albeit with a role in certification and talk of providing payment rails. The US bank, JP Morgan, has shown how far TradFi can get already without direct central bank involvement, tokenising internal transfers and issuing a JPM Coin as an alternative conduit among JPMorgan customers on public blockchain.
Onshore stablecoins set up under the Genius Act in the US are obliged to buy or set up a trust bank. It could be that the sectors will converge. Across the Atlantic, fintech darling Revolut, whose UK customers might be surprised is not a fully-licenced bank, continues to try hard to become one.
Meanwhile, august asset managers such as Franklin Templeton are hoping a tokenised take on a long-standing stalwart of US investment, money market funds, might also become a version of digital money used for institutional settlement and repo. Regulatory obstacles to the institutional deployment of digital assets continue to be removed. Reserve managers have also decided for now that stablecoins are not a useful version of money for them.
OMFIF has heard major corporate treasurers debate whether they prefer to disintermediate their house bank in favour of cheaper cross-border remittances via stablecoins or continue to have the safety of a long-trusted counterparty whose version of money cannot – even briefly – de-peg.
Stablecoin advocates point out that banks are inherently less stable due to the nature of fractional reserves, though governments have repeatedly demonstrated a willingness to defend them. Many people assume the same would happen with stablecoins despite the current lack of explicit backing, though it is untested. People familiar with Bank of England thinking have told OMFIF that a systemic stablecoin that ran into liquidity or redemption turbulence would be able to draw on central bank liquidity – at market rates – and many people speculate privately on the potential path even the shunned Fed might take to stabilise a stricken but de facto systemic stablecoin.
Different story in emerging markets
Away from developed markets with – broadly – trusted currencies and banks, the story might be different. A key market operator between banks recently told OMFIF that they are repeatedly warning regulators in countries with tight capital controls that they risk losing their monetary sovereignty as consumers and corporations discover reliable and cheap offshore ways to move money around in the form of dollar-denominated stablecoins.
Major developing economies such as India and Brazil have meanwhile rolled out successful state-backed instant payment systems working with the incumbent banking sector. Banco do Brasil is also working out how to facilitate integration of public money with tokenisation, as the ECB is doing – removing another key differentiator for stablecoins as conduits in and out of digital assets. Dollar-backed stablecoins may therefore find their key use case to be as hard currency in shaky economies, much like the paper dollar before them.
The Macbeths’ quest for supremacy ended in a counterrevolutionary bloodbath. With stablecoins we may be looking at a mere shuffling of the nobility.
Lewis McLellan is Head of Content and John Orchard is Chairman, Digital Monetary Institute, OMFIF.
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